Whether you are a REIT, a private equity investor, a pension fund, or a developer, clear height is an important factor to consider when investing in industrial real estate. Clear height – how high a building’s ceilings are – greatly impacts how much product can be stored in a space. Taller buildings are also typically newer, more modern, and more efficient, which means tenants will be willing to pay more rent per square foot for them.
The higher the rent, the higher the investment value. However, the range of clear heights can vary depending on the market. In a more traditional manufacturing hub, such as Cleveland, Ohio, the average building has a lower average clear height than a more distribution-centric market like Columbus, Ohio. This is because extra space to store product is generally more valuable to a distribution center than it is to a manufacturer.
Another reason for the difference in clear height between these two markets is that the Columbus market has more new product. These newer buildings are typically taller and boast the latest upgrades, such as power, sprinklers, dock packages, and lighting. This makes them very attractive to tenants, and they are less likely to lie vacant. Most companies, especially those that are publicly traded, strive to find the most efficient properties for their business, and are therefore drawn to these more modern spaces. This is a win-win for the landlord and the tenant, as having a financially strong tenant can increase the value of an investment property.
The example below highlights the effect clear height can have on rental rates:
Clear height: 18 ft
Rent: $3.00 psf
Annual rent: $300,000
10% cap rate: $3,000,000